Cook

Question 1

Coverage restrictions an insurer might place on a high-risk driver before voluntarily providing coverage

Answer 1

• Higher deductibles (comprehensive or collision)
• Lower limits (liability)
• Exclusion of certain coverages (medical, glass coverage)

Question 2

3 mechanisms for operating a state residual auto insurance market

Answer 2

• ARP (Assigned Risk Plan) also sometimes called AIP (Auto Insurance Plan)
• JUA (Joint Underwriting Association)
• RF (Reinsurance Facility)

Question 3

Assigned Risk Plan (ARP)

Answer 3

• Driver applies and is rejected by the voluntary market
• Driver applies to ARP
• Driver is assigned to an insurer based on insurer’s WP market share
• Regulator sets uniform rates (same rates across all insurers)
• Insurer fully services policy as if voluntarily written (collects premiums, pay claims)
• Insurer retains profits/losses
• Driver knows they’re in residual market – stigma attached to this

Question 4

Items that may make a driver ineligible for ARP

Answer 4

• No valid driver’s license
• Felony conviction within the past 36 months
• Habitual violation of the law

Question 5

Joint Underwriting Association (JUA)

Answer 5

• Driver applies to insurer in voluntary market
• Insurer chooses: keep policy or insurer/agent/broker forwards to JUA servicing carrier (driver doesn’t know if they go to JUA)
• JUA sets uniform rates
• Servicing carrier services claims
• Insurer shares in profits/losses/expenses in proportion to their voluntary business market share
• All insurers in state must share profits/losses/expenses even if they haven’t been assigned any risks

Question 6

Reinsurance Facility (RF)

Answer 6

• Driver applies to insurer in voluntary market
• Insurer chooses: keep policy or forward to RF (driver doesn’t know if they go to RF)
• Intended to be non-profit enterprises to fulfill the social good of universal availability of auto insurance
• Insurer services claims
• Insurer shares in profit/losses/expenses in proportion to their voluntary business market share
• All insurers in state must share profits/losses/expenses even if they haven’t been assigned any risks

Question 7

FAIR Plans

Answer 7

Fair Access to Insurance Requirements
* Motivation: Certain risks are essentially uninsurable, but lenders often require coverage
* Covered risks:
Properties in areas susceptible to crime/riots (urban areas after riots of 1960s)
Individuals with high number of prior claims

Question 8

How FAIR plan works

Answer 8

Rationale:
* Property owners in urban areas couldn’t find coverage due to crime/riot risk
* Could also cover coastal properties subject to windstorm damage

Operation:
* Policies are serviced by a syndicate or private company (who collect premiums, handle claims, & take a cut for their service)
* Premiums & losses are shared by all property insurers in state

Eligibility:
* Coverage must have been denied by the private market
* Property must not be vacant or trespassed onto, must not be damaged or poorly maintained, and must meet building codes